Shareholder Passivity, Cross-Border Voting and the Shareholder Rights Directive

Abstract

This paper focuses on the low cross-border turnout of shareholders at shareholder meetings of European issuers. It presents the data that is yet available on cross-border voting and examines the reasons behind the low cross-border turnout, in relative terms. Opposing the traditional view among US law & economics scholars this paper holds that law matters in the efforts to facilitate cross-border voting. This is particularly true for procedural requirements. Thus, legislative action, such as the Shareholder Rights Directive, may indeed have beneficial effects on voting turnouts across Europe. In its second part, this paper examines the impact of the Shareholder Rights Directive on procedural costs of shareholders. The Directive seeks to lessen procedural costs through the use of the internet. While it does not force a kick-start of EC Member States into the digital age, it constitutes a significant step forward in harmonizing the procedure of shareholder meetings across Europe. From a procedural point of view cross-border investors are likely to benefit from the legal certainty that the Directive provides, as well as the lower costs for the digital exercise of shareholder rights in those states which have previously refrained from implementing digital options for shareholders. The third part of this paper assesses whether - and if so which - additional steps are necessary in order to further reduce procedural costs of cross-border voting. It holds that the Shareholder Rights Directive failed to mandate an efficient regime governing the identification and authorization of shareholders who hold their shares within a chain of intermediaries and suggests four remedies to be taken by the European Parliament.

Keywords: shareholder, shareholder rights, passivity, cross-border, voting, shareholder rights directive, shareholder meeting, procedural costs, passivity claim, shareholder identification, shareholder authentication, equality of shareholders,regulatory competition,shareholder information,corporate governance

JEL Classification: G18, G29, G30, G32, G38, K00, K22